October 30, 2019 / 3:12 AM / 19 days ago

Hit to Japan retail sales by tax hike unlikely to be as bad as 2014: Moody's

FILE PHOTO: Pedestrians cast shadows as they make their way at a financial district in Tokyo, Japan, January 26, 2017. REUTERS/Kim Kyung-Hoon

TOKYO (Reuters) - Japan’s consumption is unlikely to be hit as hard by October’s sales tax hike as by one in 2014, partly due to government efforts to soften the blow, an official at rating agency Moody’s Investors Service said on Wednesday.

The relatively small magnitude of the hike is another reason the hit to spending shouldn’t be as big as felt in 2014, said Christian de Guzman, a senior vice president of sovereign ratings at Moody’s.

Japan raised its national sales tax to 10% this month, the first increase since a hike to 8% from 5% in April 2014.

The government has taken measures to ease the pain on consumers from higher costs, such as shopping vouchers, different tax rates and discounts for cashless payments.

De Guzman said while the implementation of the tax hike and its expected revenue are going to help deficit reduction over the medium term, Moody’s does not project the government to meet its policy target of a primary balance by 2025.

“The fiscal consolidation trend that we’ve seen since 2011 has paused over the past two years,” he said. “Over the medium term we do see deficit reduction continue to happen, just not at the pace the government foresees.”

Data on Wednesday showed retail sales in September grew at the strongest pace in 5-1/2 years as Japanese consumers rushed to buy big-ticket items ahead of the sales tax hike. The surge raises concern spending could tumble in the coming months.

Japan’s credit profile remains quite resilient amid expectations of a global cyclical slowdown over the next year or so, de Guzman also said.

Last week, Moody’s affirmed its rating of A1 on Japan, which is four notches below its top rating. Its outlook for Japan is stable.

Reporting by Daniel Leussink; Editing by Richard Borsuk

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